Despite Hot Start for Global Deals, Foreign Interest in US Companies is Lower

02/02/2017

Due to the high political uncertainty in the United States international acquisitions of U.S. firms are lagging compared to other parts of the world despite the fact that global corporate deals kicked off 2017 with their best January since 2000.

"The primary trading M&A partner with the U.S. is Europe. With the uncertainty surrounding Brexit and the regulatory and particularly the changes in tax, it's led to companies shying away until they have more clarity," Jim Osman, head of spinoff research firm The Edge Consulting Group, said in an email.

According to S&P Global Market Intelligence, topping the $207.1 billion in announced deals in January 2016, more than $270 billion in worldwide mergers and acquisitions was announced last month.

In contrast, foreign acquisitions of U.S. firms last month totaled only about $13.2 billion. The data further showed that this was the slowest start to a year since 2009 for U.S. acquisition.

Richard Peterson, senior director at S&P Global Market Intelligence said that een though there was the purchase by Canada's AltaGas of WGL Holdings for more than $6 billion and China's Ant Financial announced a deal to buy Dallas-based MoneyGram for $1.6 billion, including debt, there has been a drop in U.S. acquisitions.

"In terms of foreign buying in the U.S., it's going to be a cautionary outlook, because there's uncertainty about what the Trump administration will be, because of their 'America First' outlook," he said.

S&P said that the bulk of U.S. acquisitions of foreign targets in January was accounted for by the Johnson & Johnson's roughly $30 billion deal to buy Swiss biotech firm Actelion last week.

What the Treasury Department's stance on antitrust regulation will be and what changes are made to tax repatriation policy are the issues that the corporations were waiting to see developing, Peterson said.

Steven Mnuchin's confirmation for Treasury secretary has been boycotted by Democrats. Earlier, as U.S. companies attempted to cut their U.S. taxes by combining with overseas firms, working against consolidation in industries and preventing cross-border deals, the Obama administration took a stance against several large tie-ups.

Peterson said that the energy sector is the only sector that has seen some corporate deals and this is the sector that accounts for the bulk of such deal made in the in the U.S. so far this year.

Gains in share price that give companies more buying power, positive sentiment and credit availability were the main reasons, according to Peterson, behind the pickup in corporate deal-making around the world. There's "a lot in the pipeline," he said. It "could well be a record year."

According to Informa Global Markets, noting the second biggest on record since May 2016 and the busiest January ever, the corporate bond issuance hit $174.03 billion in January. There are potential changes in tax policy and additional interest rate hikes by the Federal Reserve and the rush to issue bonds comes ahead of such potential changes.